The Rio Tinto Limited (ASX: RIO) share price has fallen 4% over the last week. Could it be worth looking at after its recent drop?
Iron ore miners are in focus as the iron ore price drops. According to reporting by various media, Chinese iron demand is falling at the moment.
As one of the world's biggest iron ore miners, Rio Tinto is being put in focus.
The decline of the iron ore price isn't a surprise to some analysts out there. The broker UBS was expecting the iron price to fall with demand falling and an expectation of larger iron ore supply.
Rio Tinto is one of the miners expected to deliver a higher level of iron ore production in the next few months.
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Rio Tinto's production guidance
In 2021, Rio Tinto is expecting Pilbara iron ore production to be between 325 Mt to 340 Mt. In the first six months, it produced 152.3 Mt of iron ore, which was a decline from 161.1 Mt produced in the first half of 2020.
The miner also highlighted in its FY21 half-year result that mining has commenced at the $2.6 billion Gudai-Darri replacement iron ore mine in Western Australia, with more than nine million cubic metres of pre-stripping completed in June. Despite labour shortages, first ore in the crusher is expected in 2021, although commissioning is later than originally planned. The project is expected to ramp up in early 2022 and reach full capacity in 2023.
A large recent announcement has been that $2.4 billion of funding has been committed to the Jadar project in Serbia, one of the world's largest greenfield lithium projects, subject to receiving all necessary regulatory approvals. First saleable production is expected to be in 2026, with full production in 2029.
Broker ratings on the Rio Tinto share price
This increased supply is one of the reasons why UBS rates the Rio Tinto share price as a sell with a price target of $102.
The broker thinks Rio Tinto is valued at 12x FY22's estimated earnings with a projected grossed-up dividend yield of 14% in the next financial year.
Though some brokers aren't as pessimistic about the Rio Tinto share price such as Credit Suisse, which has a price target of $133 which is attracted to the prospect of the dividends from Rio Tinto.
Looking ahead to FY22, Credit Suisse thinks that Rio Tinto shares are valued at 8x FY22's estimated earnings, with a projected grossed-up dividend yield of 11.2%.
In the FY21 half-year result, Rio Tinto declared a total dividend of US$5.61 per share (up 262%), which included a special dividend of US$3.76 per share.
